When it comes to divorce, tax implications can be a significant concern for both parties involved. One way to protect oneself financially is through a tax indemnification agreement. In this article, we will discuss what a tax indemnification agreement is, why it is important, and provide a sample for reference.
A tax indemnification agreement is a legal contract between divorcing parties that outlines the responsibilities and liabilities related to taxes. Essentially, it is an agreement that one party will protect the other from any tax-related consequences that may arise from the divorce. This can include things like penalties, interest, or additional taxes owed.
The agreement is important because it can prevent one party from being left with a tax debt that they did not know about or were not responsible for. It can also provide peace of mind knowing that both parties are fully aware of their tax obligations and are taking steps to protect themselves.
Now, let`s take a look at a sample tax indemnification agreement:
Tax Indemnification Agreement
This Tax Indemnification Agreement (the “Agreement”) is made on [DATE], by and between [PARTY A], residing at [ADDRESS], and [PARTY B], residing at [ADDRESS]. Both parties agree to the following terms:
1. Each party will be responsible for filing their own tax returns for the tax year in which the divorce occurs.
2. Any taxes owed on the tax returns filed for the year of divorce will be the responsibility of the party who incurred the tax liability.
3. [PARTY A or PARTY B] will indemnify and hold harmless [PARTY B or PARTY A] from any penalties, interest, or additional taxes owed related to the tax returns filed for the year of divorce.
4. Both parties will cooperate with each other in the preparation of tax returns and any related documentation.
5. In the event of any dispute or disagreement related to tax liability, both parties agree to seek mediation before pursuing any legal action.
6. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors, and assigns.
7. This Agreement shall be governed by and construed in accordance with the laws of [STATE].
8. This Agreement may only be modified in writing and signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
[PARTY A SIGNATURE] [PARTY B SIGNATURE]
[PARTY A PRINTED NAME] [PARTY B PRINTED NAME]
As you can see, a tax indemnification agreement is a crucial part of any divorce agreement where taxes are a concern. It can provide protection for both parties and prevent any unexpected financial burdens related to taxes in the future. If you are going through a divorce and taxes are a concern, consider speaking with a lawyer to create a tax indemnification agreement that works best for your specific situation.